SOURCE CAPITAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 1997
at 10:00 a.m., P.D.T.
Spokane, Washington
The undersigned hereby appoints ALVIN J. WOLFF, JR. and D. MICHAEL
JONES, and each of them, proxies of the undersigned, with full power
of substitution, to vote all shares of Common Stock which the
undersigned is entitled to vote on all matters which may properly come
before the Annual Meeting of Shareholders of Source Capital
Corporation to be held April 30, 1997, and at any adjournments or
postponements thereof, with all powers the undersigned would have if
personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED ON THE
REVERSE SIDE WITH RESPECT TO MATTERS OF BUSINESS PROPERLY BEFORE THE
MEETING. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF ALL NOMINEES FOR DIRECTORS SET FORTH IN PROPOSAL NO. 1 AND
"FOR" PROPOSAL NO. 2 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT
TO SUCH OTHER MATTERS AS MAY PROPERLY BE BROUGHT BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
1. TO ELECT DIRECTORS:
CLASS III DIRECTORS for a three year term ending with the annual
meeting of shareholders in 2000
[ ] FOR all nominees listed below, (except as marked to the
contrary)
Clarence H. Barnes Robert E. Lee D. Michael Jones
To withhold authority for any individual nominee, write that nominee's
name on the space provided below:
----------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
2. TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT AUDITORS FOR 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such
other business as properly may come before the meeting.
<PAGE>
Please date and sign exactly as your name appears hereon. When
signing in a representative or fiduciary capacity, indicate title. If
shares are held jointly, each holder should sign. For a corporation,
the full corporation name should be signed by a duly authorized
officer who should state his title. For a partnership, an authorized
person should sign in the partnership name.
Date , 1997.
----------------
------------------------------------ --------------------------------
Signature of Shareholder Signature of Shareholder
------------------------------------ --------------------------------
Please print name Please print name
IF YOU PLAN TO ATTEND THE MEETING IN PERSON PLEASE CHECK HERE [ ]
<PAGE>
SOURCE CAPITAL CORPORATION
1825 N. Hutchinson Road
Spokane, Washington
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 30, 1997
----------
Spokane, Washington
March 17, 1997
To the Shareholders:
NOTICE is hereby given that the Annual Meeting of the Shareholders of
SOURCE CAPITAL CORPORATION will be held at the Red Lion Hotel Spokane
City Center, 322 North Spokane Falls Ct., Spokane, Washington on the
30th day of April 1997, at 10 o'clock a.m. P.D.T. for the following
purposes as described in the attached Proxy Statement:
1. To elect three Directors.
2. To ratify the appointment of Coopers & Lybrand L.L.P. as
independent auditors.
3. To transact such business as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE PROPOSALS.
The Board of Directors has fixed the close of business on March 7,
1997 for the determination of shareholders entitled to notice of and
to vote at such meeting and any adjournment thereof.
Please mark the box "Plan to attend" on the Proxy card if you plan to
attend the meeting in person.
By Order of the Board of Directors
Alvin J. Wolff, Jr., Chairman
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. THIS WILL ASSURE YOUR REPRESENTATION IN THE QUORUM FOR
THE TRANSACTION OF BUSINESS AT THE ANNUAL MEETING. YOUR PROXY WILL BE
REVOCABLE, EITHER IN WRITING OR BY VOTING IN PERSON AT THE ANNUAL
MEETING, AT ANY TIME PRIOR TO ITS EXERCISE.
IF THE REQUIRED NUMBER OF VOTES TO DECIDE THE ISSUES AT THE ANNUAL
MEETING ARE NOT PRESENT IN PERSON OR BY PROXY, THE MEETING MAY BE
ADJOURNED OR POSTPONED AND RESCHEDULED FOR A LATER DATE THUS REQUIRING
THE COMPANY TO INCUR ADDITIONAL EXPENSE. THEREFORE, PLEASE RETURN
YOUR PROXY PROMPTLY.
<PAGE>
SOURCE CAPITAL CORPORATION
--------------------------
PROXY STATEMENT
Annual Meeting of Shareholders
to be held on
April 30, 1997
--------------------------
PERSONS MAKING THE SOLICITATION
Each accompanying proxy is solicited by the Board of Directors of
Source Capital Corporation, a Washington Corporation (the "Company"),
with its principal executive offices at 1825 N. Hutchinson Road.,
Spokane, Washington 99212, in connection with the Annual Meeting of
the Shareholders to be held on April 30, 1997, or any adjournment or
postponement thereof. The Form 10-KSB Annual Report of the Company
for the year ended December 31, 1996, has been mailed to shareholders
prior to or together with the mailing of this Proxy Statement. The
cost of preparing, assembling and mailing this Proxy Statement and
each accompanying proxy is to be borne by the Company. The Company
may, upon request, reimburse the transfer agent, brokerage houses and
other persons representing beneficial owners of shares for their
expenses in forwarding proxy material to such beneficial owners. If
it becomes necessary to make a second distribution of proxy cards and
reminder notices to brokers and nominees of shareholders and/or to
shareholders, there will be additional charges which will be paid by
the Company. Directors, officers and regular employees of the Company
(for no additional compensation) may solicit proxies personally or by
telephone, telecopy or telegram from some shareholders if proxies are
not received promptly. The approximate date on which this Proxy
Statement and accompanying proxies are first being sent to
shareholders is March 17, 1997.
VOTING SECURITIES; QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Board of Directors has fixed the close of business on March 7,
1997, as the record date for determination of the shareholders
entitled to notice of, and to vote at the Annual Meeting (the "Record
Date"). The holders of a majority of the Common Stock issued and
outstanding and entitled to vote in person or by proxy, will
constitute a quorum.
The Company has one Class of capital stock outstanding which consists
of Common Stock, no par value ("Common Stock"). As of March 7, 1997,
1,379,220 shares of Common Stock were issued and outstanding. Each
share of Common Stock is entitled to one vote. There are no
cumulative voting rights for the election of directors. The nominees
for election as Directors who receive the highest number of votes will
be elected Directors. The ratification of the Board of Director's
appointment of auditors will require the affirmative vote of the
majority of the votes cast on the proposal.
<PAGE>
The indication of an abstention on a proxy or the failure to vote
either by proxy or in person will be treated as neither a vote "for"
nor "against" the election of any director. Shares held by brokers or
nominees for the accounts of others, as to which voting instructions
have not been given, will be treated as shares that are present for
determining a quorum, but will not be counted for purposes of
determining the number of votes cast with respect to a proposal.
Brokers and nominees, under applicable law, may vote, in their
discretion, shares for which no instructions have been given.
REVOCABILITY OF PROXY
The giving of a proxy does not preclude the right to vote in person,
should the person giving the proxy so desire. Shareholders may revoke
a proxy by written notice to the Secretary of the Company or by giving
notice of revocation at the annual meeting of shareholders or at any
time prior thereto. A proxy is not revoked by the death or
incompetency of the maker unless, before the authority granted
thereunder is exercised, written notice of such death or incompetency
is received by the Company from the executor or administrator of the
estate or from a fiduciary having control of the shares represented by
such proxy. Shares represented by a properly executed proxy in the
accompanying form will be voted at the meeting and, where instructions
have been given by the shareholder, will be voted in accordance with
such instructions. The Proxy may be revoked at any time before its
exercise by sending written notice of revocation to the Secretary of
the Company, or by signing and delivering a proxy which is dated
later, or, if the shareholder attends the meeting in person, by giving
notice of revocation to the meeting judge prior to the commencement of
the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 7, 1997, information
relating to the beneficial ownership of the Company's Common Stock by
each person known to the Company to be the beneficial owner of more
than five percent (5%) of any class of voting securities of the
Company, by each director, by those executive officers listed in the
Summary Compensation Table and by all directors and executive officers
as a group. Unless otherwise indicated, all persons named as
beneficial owners of the Common Stock have sole voting power and sole
investment power with respect to the shares indicated as beneficially
owned. The address for each of the persons listed below, unless
otherwise noted, is 1825 N. Hutchinson Road., Spokane, Washington,
99212.
<PAGE>
COMMON STOCK
------------
<TABLE>
<CAPTION>
Name of Number Percent of
Beneficial Owner Title Class of Shares Outstanding Shares
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alvin J. Wolff, Jr. Common stock 176,010 [1] 11.85%
Clarence H. Barnes Common stock 8,830 [3] *
John Frucci Common stock 7,972 [4] *
Charles Stocker Common stock 5,485 [3] *
William Roberts Common stock 8,868 [3] *
Maynard Cary Common stock 7,150 [3] *
Robert E. Lee Common stock 4,000 [2] *
D. Michael Jones Common stock 40,000 [6] 2.69%
James L. Kirschbaum Common stock 18,700 [5] 1.26%
Lester L. Clark Common stock 19,311 [7] 1.30%
All directors and
officers as a group
(10 persons) Common stock 296,326 19.96%
-------
* Less than 1%
</TABLE>
[1] Includes options to purchase 13,000 shares of Common Stock. It
also includes 1,260 shares of Common Stock owned by Mr. Wolff's
wife in her own name. Excludes 47,049 shares of Common Stock
held by Mr. Wolff's father and 5,403 shares of Common Stock held
by Mr. Wolff's adult children as to which Alvin J. Wolff Jr.
disclaims beneficial ownership.
[2] Includes options to purchase 3,000 shares of Common Stock.
[3] Includes options to purchase 4,000 shares of Common Stock.
[4] Includes options to purchase 7,000 shares of Common Stock.
[5] Includes options to purchase 13,500 shares of Common stock.
[6] Includes options to purchase 40,000 shares of Common stock.
[7] Includes options to purchase 13,000 shares of Common Stock.
Excludes 4,967 shares of Common Stock held by Mr. Clark's parents
and 400 shares of Common Stock held by Mr. Clark's adult children
as to which Lester L. Clark disclaims beneficial ownership.
<PAGE>
Proposal No. 1: ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of eight Directors who are
divided into three classes. The members of each class serve three-
year terms, with one class elected annually. The Board of Directors
has nominated the three individuals listed below for election as Class
III Directors to serve terms of three years ending at the Annual
Meeting of Shareholders in 2000 or until their respective successors
have been duly elected and qualified. The nominees are:
Clarence H. Barnes
Robert E. Lee
D. Michael Jones
The Company has no reason to believe that any of the nominees will be
unable to serve; however, should any nominee become unable to serve as
a Director for any reason, the Board of Directors shall designate a
substitute nominee. Unless instructions to the contrary are specified
in the Proxy, it is intended that the Proxies will be voted in favor
of the three persons who have been nominated by the Board of
Directors.
The Board Recommends a Vote FOR the Election of the Nominees named
above.
Board of Directors of Source Capital Corporation
<PAGE>
The following tables set forth information concerning the Company's
Board of Directors:
Class I directors whose present term of office will continue after the
annual meeting of shareholders and will expire in 1998 are as follows:
Company
Director
Name Age Since Principal Occupation
---------------------------------------------------------------------
CLASS I DIRECTORS
John Frucci 62 1991 Retired from Central Valley School
District. He was an Adjunct Professor
at Eastern Washington University,
teaching graduate level courses in
education until 1996.
William H. Roberts 73 1992 Engaged in commercial Real Estate since
1982 including Feldman-Pearson, Inc.,
Caldwell-Banker, Tomlinson Commercial
and Campbell Co.
Class II directors whose present term of office will continue after the
annual meeting of shareholders and will expire in 1999 are as follows:
Company
Director
Name Age Since Principal Occupation
---------------------------------------------------------------------
CLASS II DIRECTORS
Alvin J. Wolff, Jr. 48 1991 President of the Company from May 1989 to
January 1996 when he was elected Chairman
of the Board. He was a director of the
Bank of Spokane from 1981 to 1986 and
Chairman of the Board from 1986 to 1989.
Mr. Wolff has been the Chairman of Alvin
J. Wolff, Inc., a real estate firm, since
1976. He also serves as a Director of
Spokane Capital Management, the manager
of a venture capital investment fund.
Charles G. Stocker 59 1991 Superintendent of East Valley School
District. Mr. Stocker also serves as
President of Valley Hospital and Medical
Center Advisory Board; Vice President of
the Board of Directors Empire Health
Services; and Member of the Board of
Directors of the Washington Association
of School Administrators.
<PAGE>
Class III directors whose present term of office expires at the Annual
Meeting of Shareholders April 30, 1997 and (with the exception of Mr.
Cary) if elected whose term will expire in 2000 are as follows:
Company
Director
Name Age Since Principal Occupation
-----------------------------------------------------------------------
CLASS III DIRECTORS
Clarence H. Barnes 55 1991 Dean of the School of Business
Administration, Professor of Economics at
Gonzaga University and a Director of
Wismer-Martin, Inc.
Robert E. Lee 61 1996 Executive director of the Denver
Foundation since 1989. Chairman of the
Board and Chief Executive Officer of
First Interstate Bank of Denver from
1980 to 1989. Mr. Lee is a director of
The Equitable of Iowa Companies,
Storage Technology Corporation and
Meredith Corporation. Mr. Lee was
designated by the Board of Directors to
fill an available seat on the board in
October 1996.
D. Michael Jones 54 1996 President and Chief Executive Officer of
Source Capital, since January 1996.
President of West One Bancorp head-
quartered in Boise, Idaho from 1987
through 1995.
Maynard Cary 84 1991 Retired, Mr. Cary has had an extensive
career since 1949 in the financial and
investment industries with emphasis on
starting and building businesses. He is
also a Director of the Spokane Rehabili-
tation Center. Mr. Cary has declined to
stand for reelection as he is retiring
at the end of his current term.
There are no family relationships between the directors and executive
officers. Mr. Lee is a director of The Equitable of Iowa Companies,
Storage Technology Corporation and Meredith Corporation and Dr. Barnes
is a director of Wismer-Martin, Inc. Each of these companies has a
class of securities registered under Section 12 of the Securities
Exchange Act of 1934.
<PAGE>
EXECUTIVE OFFICERS
In addition to Mr. Wolff and Mr. Jones, each described above, the
executive officers of Source Capital Corporation are James L.
Kirschbaum and Lester L. Clark. Mr. Kirschbaum has held his office for
3 years and Mr. Clark has held his position for the past 10 years.
JAMES L. KIRSCHBAUM
Mr. Kirschbaum, 56, has served as Executive Vice-President, of Source
Capital since June of 1994. During 1993 and 1994, he was Managing
Director, Corporate Operations, of Insignia Financial Group Inc. of
Greenville, South Carolina. From 1991 to 1993 Mr. Kirschbaum was
President and Chief Executive Officer with Security Properties
Investments Inc., Seattle, Washington. From 1990 to 1991 he was
Chairman and Chief Executive Officer of Professional Resources Group,
Seattle, Washington., a temporary employment provider to the Mortgage
Banking industry. Prior to 1990 Mr. Kirschbaum had over 25 years
experience in the Banking industry including, Executive Vice President
and Manager, Commercial Real Estate Group of Seafirst Bank, Seattle,
Washington.
LESTER L. CLARK
Mr. Clark, 54, a certified public accountant, has served as Chief
Financial Officer of Source Capital for the past ten years. Prior to
1987, Mr. Clark served as Chief Financial Officer for various
financial services organizations. In 1991 Mr. Clark was elected Vice
President and Treasurer; and in 1994 was appointed Secretary of the
Corporation.
Proposal No.2: RATIFICATION OF APPOINTMENT OF COOPERS & LYBRAND L.L.P
AS INDEPENDENT AUDITORS
Subject to shareholder ratification, the Board of Directors, has
reappointed the firm of Coopers & Lybrand L.L.P., Certified Public
Accountants, as independent auditors to make an examination of the
accounts of the Company for the year 1997. Coopers & Lybrand L.L.P.
have served continuously as independent auditors for the Company since
1986.
One or more representatives of Coopers & Lybrand L.L.P. are expected
to be present at the Annual Meeting, and will have an opportunity to
make a statement if they desire to do so and will be available to
respond to questions.
The Board of Directors unanimously recommends a vote FOR Proposal
No. 2.
<PAGE>
Proposal No.3: TO TRANSACT SUCH BUSINESS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF
At the date of this proxy statement, the Board of Directors knows of
no other matters which will be presented for consideration at the
Annual Meeting. However, if any such other matters are properly
presented for action at the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares
represented by the proxy in accordance with their judgment on such
matters, and discretionary authority to do so is granted in the form
of proxy.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board of Directors Meetings
---------------------------
The Board of Directors held ten meetings during fiscal year ended
December 31, 1996. During 1996 no director attended fewer than 75% of
the aggregate of (1) the total number of meetings of the Board of
Directors held during the period for which he was a director and (2)
the total number of meetings held by all Committees of the Board on
which he served. The numbers of meetings of each Committee of the
Board are described below.
Committees
----------
The Company has a Compensation Committee, Executive Committee, Loan
Committee, Audit Committee and a Facilities Committee, all of which
are comprised of members of the Board of Directors.
Compensation Committee
----------------------
The Compensation Committee held two meetings in 1996. The Committee
reviews and makes recommendations to the Board of Directors concerning
the employment contract of Company's chief executive officer, reviews
compensation of the other executive officers and reviews benefit plans
related to all officers and employees. The Committee administers stock
option plans of the Company. The Compensation Committee consists of
two non-employee directors and one employee director, who are Dr.
Barnes, Mr. Wolff and Mr. Stocker.
Executive Committee
-------------------
The Executive Committee, which held one meeting in 1996, attends to
matters which require input from the directors but which do not
require board approval. The Executive Committee consists of four
directors, who are Dr. Barnes, Mr. Stocker, Mr. Jones and Mr. Wolff.
<PAGE>
Loan Committee
--------------
The Loan Committee, which held five meetings in 1996, consists of five
directors, who are Mr. Wolff, Mr. Cary, Mr. Frucci, Mr. Roberts and
Mr. Jones. The purpose of the Loan Committee is to review and approve
or decline any loan exceeding $2,500,000 which has been approved by
the Officers' loan committee. Three directors are required for a
quorum at any loan committee meeting.
Audit Committee
---------------
The Audit Committee, which held one meeting in 1996, consists of four
directors, who are Mr. Lee, Mr. Frucci, Mr. Cary and Mr. Roberts. The
purpose of the committee is to meet with the Company's auditors to
plan the current years audit, review past and proposed audit fees,
review the completed financial statements and meet with the Company's
auditors to review any areas of operations which the auditors feel
require the attention of management.
Facilities Committee
--------------------
The facilities committee held two meetings in 1996. It consists of
three directors, who are Mr. Frucci, Mr. Roberts and Mr. Stocker. The
purpose of the committee is to review the Company's current
facilities, plan for the Company's future needs, review the current
market for lease rates and locations and make recommendations to the
board regarding said facilities.
COMPENSATION OF MANAGEMENT
Director Compensation
---------------------
During 1996, each director, other than Mr. Wolff and Mr. Jones,
received a fee of $500 for each board and committee meeting attended.
<PAGE>
Executive Officer Compensation
------------------------------
The following Summary Compensation Table sets forth compensation paid
by the Company for services rendered for the years ended December 31,
1996, 1995, and 1994, with respect to the Chief Executive Officer and
each of the highest paid executive officers of the Company whose
aggregate cash compensation in fiscal 1996 exceeded $100,000:
<TABLE>
<CAPTION>
Annual Long-term
Compensation Compensation
--------------- ------------
Securities
Name and Underlying
Principal Position Year Salary ($) Bonus ($) Options
------------------------ ---- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Alvin J. Wolff, Jr. 1996 103,000 [1]
Chairman of the Board 1995 86,769 [1] 108,575 3,000
1994 89,081 [1] 166,400 10,000
D. Michael Jones 1996 134,043 [2] 47,057 [2] 40,000
President and
Chief Executive Officer
James L. Kirschbaum 1996 138,400 15,000 7,500
Executive Vice President 1995 133,082 11,025 6,000
1994 [3] [3] [3]
</TABLE>
[1] For each year represented, Mr. Wolff has elected to defer his
salary and bonus into a trust fund. Compensation listed excludes
amounts paid to Mr. Wolff under a lease for the Company's offices
through June 1995. During 1995, Mr. Wolff took an unpaid leave
of absence which reduced his salary below the contracted amount.
[2] Mr. Jones salary includes the Company's matching amounts under
the Company's 401(K) plan.
[3] Mr. Kirschbaum's employment with the Company began in June, 1994.
No amounts are shown for the year in which the total of annual
salary plus bonus is less than $100,000. Mr. Kirschbaum's salary
includes the Company's matching amounts under the Company's
401(k) plan.
<PAGE>
Option Grants in Last Fiscal Year
Individual Grants
-----------------
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Market Price
Options Employees in Exercise or Base on Date of Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Grant ($/sh) Date
-------------------- ----------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
D. Michael Jones 10,000 71% $5.00 $5.00 01/29/01
10,000 6.65 5.00 01/29/01
10,000 8.35 5.00 01/29/01
10,000 7.25 7.25 12/17/06
James L. Kirschbaum 7,500 13% 7.25 7.25 12/17/06
</TABLE>
Stock Options
-------------
The Company has in effect two stock option plans for non-employee
directors and key employees. The two plans provide for the granting
of options to purchase up to 150,000 shares of common stock having
terms of up to ten years. Under the Directors Stock Option Plan (the
"Directors Plan"), non-employee directors receive an annual grant of
an option to purchase 1,000 shares of the Company's Common Stock at
fair market value not to exceed $10.00 per share. Under the Directors
Plan, directors are also entitled to receive a grant of an option to
purchase an additional 1,000 shares if the Company's pre-tax income
for the fiscal year exceeds 110 percent of the pre-tax income for the
prior fiscal year immediately preceding, and an option to purchase an
additional 1,000 shares if the pre-tax income for the fiscal year
exceeds 115 percent of the pre-tax income for the fiscal year
immediately preceding. The exercise price for the additional
incentive stock options is 85 percent of the fair market value of the
common stock as defined under the Directors Plan. The maximum annual
grant to an eligible participant in any one fiscal year of the Company
under the Directors Plan shall not exceed 3,000 shares. The plan for
key employees (the "Key Employee Plan") is administered by the
Compensation Committee of the Board of Directors which has
discretionary authority to grant options to eligible participants.
<PAGE>
The Key Employee Plan authorizes the granting of incentive stock
options, nonqualified stock options, and stock appreciation rights.
The total number of shares which may be granted under the Key Employee
Plan will be subject to adjustment for stock splits and similar
events. Options that are forfeited or terminated will again be
available for grant. Shares may be authorized but unissued, currently
held or reacquired shares.
The Key Employee Plan provides that the option price per share for
incentive stock options will not be less than 100% of the fair market
value per share on the date the option is granted and that the option
price per share for nonqualified stock options will be determined at
the time of grant by the Committee. The grant of options vest 40%
after one year, an additional 30% after two years, and a final 30%
after three years. Additionally, if an eligible officer or employee
is terminated because of fraud, dishonesty, embezzlement or breach of
fiduciary acts, all unexercised options are canceled and declared null
and void.
Employment Contracts
--------------------
Effective January 1, 1995, the Company entered into a 5 year
employment contract with Mr. Wolff providing for a base salary of
$100,000 with annual cost of living adjustments, an automobile
allowance, a cash bonus equal to 10% of the net income of the Company
(as defined in the employment contract) and a combination of incentive
stock options and/or stock appreciation rights if the performance
level of the Company exceeds a 13% return on shareholders equity, on
an annual basis for the years beginning in 1995 and extending through
1999. Effective January 29, 1996 Mr. Wolff's employment contract was
amended to delete the provisions regarding his bonus of 10% of the net
income. All other terms of the contract remain the same.
Effective January 20, 1996 the Company entered into a five year
employment agreement with D. Michael Jones. Under the contract Mr.
Jones is to serve as President and Chief Executive Officer of the
Company. Mr. Jones' salary under the contract is$140,000 per year
adjusted annually for cost of living increases. Mr. Jones is entitled
to receive a bonus each year equal to 10% of the net income of the
Company (as defined in the employment agreement). Mr. Jones has
received stock options to purchase 30,000 share of common stock at
exercise prices reflected in the preceding tables. In addition to the
foregoing Mr. Jones receives an auto allowance and such other employee
benefits as are provided by the Company.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee of the Board of Directors (the "Committee")
administers compensation programs, makes awards of stock options and
makes recommendations to the Board of Directors with respect to the
salary of the Company's chief executive officer and directors.
Compensation consists of a combination of base salary, cash bonus
awards and option grants under the Company's 1994 Stock Option Plans.
The Committee is comprised of two non-employee directors, and one
employee director.
Compensation Policy
-------------------
In determining the compensation for the chief executive officer, the
Committee endeavors to structure compensation so as to:
- Attract and retain a highly qualified officer by maintaining
competitive compensation packages;
- Motivating the officer to achieve and maintain superior performance
levels;
- Making a significant portion of the officer's total compensation
package at risk in performance driven incentive plans and creation
of shareholder value.
The Committee believes that the total compensation for the chief
executive officer should be competitive with compensation paid by
businesses of similar size, and market position to the Company so that
the Company can attract and retain qualified officers.
The Committee sets compensation for the chief executive officer by
contract. The chief executive officer sets base salary levels for the
other officers and employees based primarily on the performance of
each officer for the previous year. The evaluations consist of
quantitative assessments of attainment of previously established
financial and business goals and key performance indicators, including
return on equity and operating efficiency. Evaluations also review
the experience and contribution of the officer and employee, based on
an assessment of each officer and employee's skills, judgment and
corporate priorities.
Each year, BONUSES for executive officers are based on the Company's
achievement of established business goals and an individual's
contribution to those goals.
<PAGE>
STOCK OPTIONS. Awards of stock options and stock appreciation rights
("SARs") under the Company's stock options plans are designed to
provide long-term incentives for senior management and to more closely
tie the long-term interests of the Company's executive officers and
its shareholders. The Committee selects the officers, if any, to
receive stock options and/or SARs and determines the number of shares
subject to each option. The size of individual option grants is
generally intended to reflect an officer's position within the Company
and the officers performance and contributions to the Company.
CEO COMPENSATION. During 1996, the Company's most highly compensated
officer was D. Michael Jones, President and CEO. A substantial
portion Mr. Jones annual compensation is based on the achievement of
financial goals. In addition to leading the Company through another
financially successful year, the committee believes Mr. Jones has
strengthened the Company's competitive position.
CERTAIN TRANSACTIONS BY AND WITH MANAGEMENT
In March 1996 the Company entered into a five year lease for its
headquarters in a new Class A building owned by a partnership composed
of the adult children of Alvin J. Wolff, Jr. The lease payments are
scheduled at $16.00 per foot per year and are subject to annual cost
of living adjustments beginning March 1, 1998. Based on the present
number of square feet occupied by it, the Company paid $65,000 in the
year ended December 31, 1996 and anticipates it will pay $76,375 as
rental during 1997 under the existing lease agreement. Prior to June
1995, the Company leased space in a building owned by Mr. Wolff.
Total lease payments to Mr. Wolff for the year ended December 31, 1995
were $35,500.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons owning more than
ten percent of a registered class of the Company's securities to file
with the United States Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of equity
securities of the Company. Officers, directors, and greater- than-ten-
percent shareholders are required by Securities and Exchange
Commission's regulations to furnish the Company with copies of all
Section 16(a) forms filed by them.
To the Company's knowledge, based solely on its review of copies of
reports furnished to the company and written representations that no
other reports were required, the Company believes that during fiscal
year ended December 31, 1996, all filing requirements under Section
16(a) of the Securities Exchange Act of 1934 were satisfied with the
exception that Robert E. Lee filed his initial Form 3 report of stock
ownership late.
<PAGE>
1998 ANNUAL MEETING SHAREHOLDER PROPOSALS
It is presently anticipated that the next annual meeting of
shareholders will be held on April 30, 1998. In order for any
shareholder proposal to be considered for inclusion in the proxy
materials of the Company for that meeting, proposals of shareholders
must otherwise be in compliance with applicable Securities and
Exchange Commission Regulations and be received by the Company on or
before December 15, 1997.
ADDITIONAL INFORMATION
Copies of the Company's annual report on Form 10-KSB, filed with the
Securities and Exchange Commission, including financial statements and
financial statement schedules, have been mailed to shareholders of the
Company herewith. Additional copies are available without charge upon
request. Requests should be addressed to the Secretary, Source
Capital Corporation, 1825 N. Hutchinson Road, Spokane, Washington
99212.
<PAGE>
